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1 POLICY BRIEF October 2015 Which Rural and Urban Hospitals Have Received Readmission Penalties Over Time? Peiyin Hung, MSPH Michelle Casey, MS Ira Moscovice, PhD Key Findings Over the first three years of the Readmissions Reduction Program, the proportion of both rural and urban Prospective Payment System (PPS) hospitals receiving penalties has increased. About two-thirds of both rural and urban hospitals received penalties for FY 2013 and 2014; in FY 2015, almost four in five rural and urban hospitals received penalties. Among rural and urban hospitals, the likelihood of receiving readmission penalties varied as a function of hospital characteristics such as size, ownership, and region of the country. Both rural and urban hospitals located in communities with fewer primary care physicians, lower family income and education levels, and a higher proportion of the population age 65 and older were more likely to be penalized. The average payment reduction (as a percentage of Medicare payments) for rural hospitals has exceeded that of urban hospitals for all three years. rhrc.umn.edu Background The Centers for Medicare & Medicaid Services (CMS) has historically paid hospitals based on the volume of services they provide to patients rather than on their performance. The Affordable Care Act authorized CMS to implement several initiatives to realign hospitals financial incentives to provide high-quality care, including the Hospital Readmissions Reduction Program, the Hospital Value-Based Purchasing Program, and the Hospital- Acquired Condition Reduction Program. The Hospital Readmissions Reduction Program reduces Medicare payments for hospitals determined to have excess rates of patient readmissions for specific conditions. Maximum payment reductions were 1% for FY 2013; 2% for FY 2014; and 3% in FY 2015 and thereafter. The program applies to all hospitals paid under the Prospective Payment System (PPS); Critical Access Hospitals (CAHs) are exempt. Under the Readmissions Reduction Program, readmission rates are based on three years of Medicare discharge data for selected conditions, and are riskadjusted for patient demographic characteristics, frailty, and comorbidities. Planned readmissions are excluded from the rates. Hospital performance is compared to the national average for patients with each condition. For FY 2013 and FY 2014, the applicable conditions were acute myocardial infarction (AMI), congestive heart failure, and pneumonia. For FY 2015, CMS expanded the conditions to include chronic obstructive pulmonary disease (COPD) and elective total-hip and total-knee arthroplasty (joint replacement surgery). In FY 2017, CMS will expand the conditions to include coronary artery bypass graft (CABG) surgery. Nationally, a total of 2,610 hospitals received readmission penalties in FY Readmission penalties for FY 2015 were calculated based on a hospital s readmission performance from July 2010 to June Purpose The purpose of this project was to assess rural-urban differences in the proportion of hospitals that received penalties under the Readmissions Reduction Program over time, and whether condition-specific hospital readmission rates differed for rural and urban hospitals. Approach This project included all PPS hospitals eligible for the Readmissions Reduction Program. The sample consisted of 2,471 urban and 860 rural PPS hospitals. Rural areas were defined based on the Office of Management

2 and Budget s definition of a nonmetropolitan county. We used publicly-available, hospital-level, readmission penalty data from CMS from FY FY These data were merged with FY 2012 American Hospital Association Annual Survey data and FY 2012 Area Health Resource File data. We employed descriptive and bivariate statistics. Two-group t-tests were used to identify significant differences in condition-specific readmission rates between urban and rural PPS hospitals. Results Receipt of Penalties by Rural and Urban Hospitals Over the first three years of the Readmissions Reduction Program, the proportion of both rural and urban PPS hospitals receiving penalties has increased (Figure 1). In FY 2013 and 2014, about two-thirds of rural and urban hospitals received penalties. In FY 2015, nearly four out of five rural and urban hospitals received penalties, reflecting a 25% increase in the number of hospitals being penalized from FY 2013 to FY 2014 and a 20% increase in the number of hospitals being penalized from FY 2014 to FY Organizational and County Characteristics of Hospitals Readmission Penalties Analysis of the organizational characteristics of rural and urban hospitals that received readmission penalties in FY 2015 indicates several significant differences (Table 1, next page). Urban public and private nonprofit hospitals were more likely to be penalized than urban for-profit hospitals (p<0.009). The reverse was true for rural hospitals: for-profit rural hospitals were more likely to Figure 1. of Rural and Urban PPS Hospitals Readmission Penalties, FY FY 2013 FY 2014 FY 2015 be penalized than private non-profit or public rural hospitals (p=0.013). System-affiliated hospitals in both urban and rural areas were more likely to be penalized (p<.001) than freestanding hospitals. In the Northeast and West Census Region, a significantly higher percent of urban hospitals were penalized than rural hospitals (90% vs. 82%); the opposite was true in the South, where 79% of urban hospitals and 86% of rural hospitals were penalized. Lower-volume rural hospitals (those with less than 100 beds, 7,000 adjusted annual admissions, or 2,200 Medicare discharges) were more likely to receive readmission penalties than small urban hospitals; however, large urban hospitals were more likely to be penalized than large rural hospitals. Both rural and urban hospitals located in communities with fewer primary care physicians relative to the population, lower family income, lower education levels, and a higher proportion of the population age 65 and older were significantly more likely to be penalized (all p<.001) (Table 63.4% 66.0% 0% 20% 40% 60% 80% Rural Hospitals Urban PPS Hospitals 65.2% 66.5% 79.1% 78.9% 2, page 4). In high-income counties (median family income >$65,000), rural hospitals were significantly less likely to be penalized than urban hospitals (p=0.017). Rural hospitals in high-education counties (more than 35% of population age 25 and older with four-year college education) were also less likely to be penalized than urban hospitals (p=0.0496). Other differences in rural and urban hospitals probability of being penalized conditioned on county-level characteristics were not significant. Amount of Payment Reductions As a percentage of Medicare payments, the average (mean) payment reduction for rural hospitals has been significantly higher (p<.001) than that of urban hospitals for all three years (Table 3, page 4). The mean payment reduction for rural hospitals increased from -0.49% in FY 2013 and 2014 to -0.71% in FY For example, for a hospital with $5 million in total annual Medicare payments, the -0.71% reduction reflects a loss of $35,500. However, Page 2 October 2015

3 Table 1. Organizational Characteristics of Urban and Rural Hospitals Readmission Penalties, FY 2015 Urban Hospitals Rural Hospitals Significant Differences between Urban & Rural N Penalty N Penalty Hospitals All Hospitals Hospital Ownership a Private not-for-profit Government, non-federal For-profit p<0.01 Missing System Affiliation a Yes No Hospital Size a <50 beds p< beds p< beds beds Census Region a Northeast p<0.05 South p<0.01 Midwest West p<0.01 Adjusted Annual Admissions a <= p< p< Annual Medicare Discharges a <= p< p< a Within each category of organizational characteristics, significantly higher percentages of rural and urban hospitals receiving a penalty are highlighted. there is considerable variation in the payment reduction amounts within the groups of rural hospitals and urban hospitals, as shown by the standard deviations (Table 3, next page). Condition-Specific, Risk-Adjusted Readmission Rates Table 4 (page 5) shows the average (mean) risk-adjusted readmission rates for AMI, heart failure, pneumonia, COPD, and hip & knee replacement for rural and urban hospitals for FY This means, for example, that after adjusting for risk factors including patient demographic characteristics, frailty, and comorbidities, 18% of AMI patients admitted to urban hospitals were readmitted within 30 days, compared to 18.9% of AMI patients admitted to rural hospitals. Urban hospitals had, on average, significantly lower (better) risk-adjusted readmission rates for AMI patients than rural hospitals, but significantly higher (worse) rates for patients with heart failure, pneumonia, and COPD. Hip and knee replacement readmission rates did not differ significantly between urban and rural hospitals. Among hospitals that received a readmission penalty, urban hospitals again had significantly lower riskadjusted readmission rates for AMI patients than rural hospitals, but significantly higher rates for patients with heart failure, pneumonia, COPD, and hip & knee replacement than rural hospitals. Among the hospitals that did not receive penalties, rural hospitals had significantly better performance for two conditions (pneumonia, COPD); urban hospitals had significantly Page 3 October 2015

4 better performance for two conditions (AMI, hip & knee replacement); and heart failure readmission rates did not differ significantly between urban and rural hospitals. Discussion and Implications The Readmissions Reduction Program has raised concerns about the extent to which readmission rates are influenced by factors outside the control of hospitals, including the socioeconomic status of patients. 2-3 Our study showed that both rural and urban hospitals located in counties with fewer resources and greater needs are more likely to incur readmission penalties, adding to previous research showing that readmission penalties disproportionately affect safety-net hospitals and those located in lower income communities. 2-3 Additional concerns about the program include CMS policy of assessing readmission penalties relative to the mean performance in a year rather than having fixed targets. 4 Experts have also noted that the CMS readmission rates facilitate provider comparison, but do not help providers figure out why they are doing better or worse, or how they can improve. 4 While the dollar amount of readmission reduction penalties may not seem large for the average rural hospital, the overall financial condition of many rural hospitals is precarious: the average Medicare acute inpatient margin for a rural PPS hospital was -2.6% in 2012, 5 and several rural hospitals have closed since In addition, hospitals may also be incurring penalties under other Medicare programs such as the Hospital Value-Based Purchasing and Hospital- Acquired Condition Programs. Table 2. County Characteristics of Urban and Rural Hospitals Readmission Penalties, FY 2015 County-Level Characteristics Primary Care Physicians per Urban Hospitals Rural Hospitals Significant Differences between Urban & Rural 1,000 Population a N Penalty N Penalty Hospitals <1:2000 (Low) :2000 to 1: :1500 to 1: >1:1000 (High) Median Family Income a <$50, $50,000 - $59, $60,000-S64, >$65, p<0.05 of Population 25 Years and Older with 4-Year College Degree a <15% %-25% %-35% >35% p<0.05 of Population 65 Years and Older a <10% % % >17% a Within each category of organizational characteristics, significantly higher percentages of rural and urban hospitals receiving a penalty are highlighted. Table 3. Medicare Payment Reductions for Hospitals Penalized under the Readmissions Reduction Program, FY FY 2013 FY 2014 FY 2015 Hospital Location Mean (Std. Dev.) Mean (Std. Dev.) Mean (Std. Dev.) Rural -0.49% (0.34) -0.49% (0.45) -0.71% (0.66) Urban -0.40% (0.33) -0.34% (0.33) -0.59% (0.56) Page 4 October 2015

5 Table 4. Condition-Specific Risk-Adjusted Readmission Rates by Urban- Rural Location and Penalty Status, FY 2015 Urban All Hospitals Rural Condition N Mean (Std) N Mean (Std) P-value AMI % (2.9) % (2.9) P<.001 Heart Failure % (2.5) % (2.4) P<.001 Pneumonia % (2.1) % (2.1) P<.001 COPD % (2.1) % (2.0) P<.001 Hip & Knee % (1.1) % (0.9) Hospitals that Received A Penalty Urban Rural Condition N Mean (Std) N Mean (Std) P-value AMI % (2.8) % (2.7) P<.001 Heart Failure % (2.4) % (2.3) P<.001 Pneumonia % (2.0) % (2.1) P<.001 COPD % (2.0) % (2.0) P<.001 Hip & Knee % (1.0) % (0.9) Hospitals that Did Not Receive A Penalty Urban Rural Condition N Mean (Std) N Mean (Std) P-value AMI % (2.4) % (3.1) P<.001 Heart Failure % (1.9) % (1.8) Pneumonia % (1.6) % (1.6) P<.001 COPD % (1.5) % (1.6) P<.001 Hip-Knee % (0.7) % (0.8) Better (lower) readmission rates are highlighted. Significant differences in condition-specific risk-adjusted readmission rates between urban and rural hospitals were noted in bold P-values. Nationally, readmission rates for Medicare patients with AMI, heart failure, and pneumonia began declining in 2012; Kaiser Family Foundation researchers have suggested that this decline may be the result of hospitals implementing strategies to lower readmissions in response to enactment of the Hospital Readmissions Reduction Program. 7 Clearly, the program has focused national attention on the issue of readmissions, and readmission rates are likely to remain part of the discussion on value in the Medicare program. Page 5 October 2015

6 References 1. Rau J. Medicare Fines 2,610 Hospitals in Third Round of Readmission Penalties. Kaiser Health News, October 2, Available at 2. Herrin J, St. Andre J, Kenward K, Joshi MS, Audet AM, Hines SC. (2015). Community Factors and Hospital Readmission Rates. Health Services Research, 50: doi: / Gu Q, Koenig L, Faerberg J, Steinberg CR, Vaz C, Wheatley MP. (2014). The Medicare Hospital Readmissions Reduction Program: Potential Unintended Consequences for Hospitals Serving Vulnerable Populations. Health Services Research, 49: doi: / Marks C, Loehrer S, McCarthy D. Hospital Readmissions: Measuring for Improvement, Accountability, and Patients. Commonwealth Fund Issue Brief, September Medicare Payment Advisory Commission (MedPAC). Section 6: Acute Inpatient Services. In Health Care Spending and the Medicare Program: A Data Book, June Available at 6. Kaufman, B. G., Thomas, S. R., Randolph, R. K., Perry, J. R., Thompson, K. W., Holmes, G. M., & Pink, G. H. (2015). The Rising Rate of Rural Hospital Closures. The Journal of Rural Health. 7. Boccuti C, Casillas G. Aiming for Fewer Hospital U-turns: The Medicare Hospital Readmission Reduction Program. The Kaiser Family Foundation. Policy Brief. January Available at This study was supported by the Federal Office of Rural Health Policy (FORHP), Health Resources and Services Administration (HRSA), U.S. Department of Health and Human Services (HHS) under PHS Grant No. 5U1CRH The information, conclusions and opinions expressed in this policy brief are those of the authors and no endorsement by FORHP, HRSA, or HHS is intended or should be inferred. For more information, contact Peiyin Hung University of Minnesota Rural Health Research Center Division of Health Policy and Management, School of Public Health 2520 University Avenue SE, #201 Minneapolis, Minnesota Page 6 October 2015

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